http://www.businesstimes.com.sg/sub/...71140,00.html?

Published January 14, 2012

UBS sees recovery for S'pore economy in Q1

World economy will do better than expected as US recovers, despite EU crisis

By CONRAD TAN


THE Singapore economy is likely to start to recover in the first quarter of this year and the world economy will probably do better than most investors fear, despite the debt crisis in Europe, a senior analyst said yesterday.

'The US economy is starting to recover and is showing signs of strong momentum,' said Kelvin Tay, chief investment strategist for UBS Singapore wealth management research.

'We expect it to grow by 2 per cent this year. It's a weak, anaemic recovery, but a recovery nonetheless, in the world's biggest economy and the economy that's most important to Asia outside Japan.'

Mr Tay was speaking to delegates at a business outlook forum organised by the Singapore Chinese Chamber of Commerce & Industry and BT.

Easier access to bank credit for small businesses is spurring new hiring, he said.

The closely watched US monthly employment report published last week was healthier than most economists had expected. Employers added a net 200,000 jobs in December - double the figure in November - while the unemployment rate fell to 8.5 per cent.

Meanwhile, a drop in retail fuel prices in late 2011 has left Americans with more money to spend on other goods and services, buoying consumer spending, which accounts for about 70 per cent of the US economy.

'The risks are with the eurozone,' Mr Tay said. Governments there need to refinance some 234 billion euros (S$385 billion) worth of debt in the first quarter alone, by UBS's estimates.

'If this can be done without any major disruption, then this year, the short-term risk of the markets falling sharply will dissipate.'

'But the long-term structural issues will remain for a very long time,' he warned.

Also, European banks that hold large amounts of eurozone government debt will need to raise more cash to shore up their balance sheets and are likely to cut back on lending to businesses and households, crimping the region's economic growth further, he added.

UBS analysts forecast the eurozone economy to shrink by 0.7 per cent this year.

The prolonged deleveraging of governments and banks in the eurozone will raise unemployment and drag down growth in the years to come, Mr Tay noted. 'It's very sobering. The US economy is in a cyclical downturn; the eurozone is not only in a cyclical downturn, it's in a structural downturn.'

In Asia, Singapore and Hong Kong will be hurt the most as global growth slackens, but most Asian governments have the financial muscle to stimulate growth if necessary, he said.

China, in particular, will prove resilient, with economic growth slowing to around 8 per cent this year - deemed a 'soft landing', he predicted.

Sounding an optimistic note on the Singapore economy, Mr Tay said that it has been in recession for the past nine months, if the volatile biomedical manufacturing sector is excluded, and will likely rebound soon.

'We believe that GDP will bottom out in the first quarter,' he said.

The government has warned that Singapore's economic growth is likely to slip below 3 per cent this year, from 4.8 per cent in 2011, and could stall if the world's advanced economies slide into recession.